How to Finance a Biotech Startup
Every new business needs some startup capital, for research, product development and production, permits and licensing, and other overhead costs. Once you establish your needs based on the size of your company and stage of development, you have several options for obtaining funding. Below is a list of some of these options.
Academics still in the research stages might qualify for government grants for equipment and staff salaries (graduate students and technicians).
There are grants available for academic collaborations with industry to facilitate invention commercialization (e.g., in Canada, IRAP funds a large number of collaborative biotech projects). In the U.S. funding from the National Institutes of Health (NIH) comes with certain data sharing policies that must be followed.
Universities that have recognized the potential of their research programs have organizations to help commercialize the discoveries of their scientists, such as Emtech Bio, a collaborative organization formed by Emory and Georgia Tech Universities.
Many startups rely on funding from private investors that have an interest in biotech and believe in the product. This might come from friends and family or acquaintances with money. These people might be the easiest to convince that your product is a viable investment, and they typically demand the least control over your company. However, if the company folds, you have the most to lose in terms of your relationships with them.
Often friends and family don't provide substantial amounts of funding, but you might find more support with "angel investors." These are individuals with capital who invest privately in new businesses. You might be able to get up to $500 thousand or more from such investors.
A typical angel investor will demand a larger share of the company than friends or family, thus more control. However, you might actually benefit from their experience and advice. Angels know what they are up against, and you risk less in terms of personal relationships by taking this route.
Like angels, venture capitalists will also demand a fair amount of control over your operations and decision-making, but venture capital is a valuable resource and common source of funding in the biotech industry.
The VC will also rally around the business, helping with management, promotion, and providing contacts to protect their investment, which can often be up to several million dollars. A VC will help you identify potential milestones and set a course toward achieving them.
Look into loans for new businesses and be sure to have a thorough business plan. It's usually easier to get a small business loan if you already have paying customers. If this isn't an option, you can try for a personal loan if it's enough to get you started.
The downside of this is, if the business fails, you still have to repay the loan. Although the amount of funding you gain might be less than with investors as listed above, by starting with "debt" financing (loans, lines of credit, and credit cards) you demonstrate to investors that you have faith in the company and are willing to take risks to make it work.
Going public is usually an option for more established companies, but is a way to get additional funding to complete a project and bring it to market. Selling shares is not always the best business strategy, however, so the various pros and cons of going public need to be considered before launching an IPO.